Quick Business Revision

FinancePosted by Trusty Owl Wed, March 15, 2017 16:20:57Quick tip:
Do not mix up CASH FLOW with PROFIT/LOSS. This is a key element of your
understanding and you will always be tested on your ability to know the
difference.

A CASH
INFLOW is money that comes in a business in the form of REVENUE, LOAN, CAPITAL.
A cash inflow may also include payments from debtors. Cash is needed to allow a
business to pay its EXPENSES.

A CASH
OUTFLOW is money that flows out of a business as a form of EXPENDITURE. This
may be wages, salaries, rent on premises, marketing, paying for leases or pay
back a loan.

A business
needs to manage its cash inflows and outflows so that it can pay all of its
bills.

Businesses
normally produce a cash flow forecast to assess the position of their cash flow
position. They also produce cash flows
in order to support a business plan. A cash flow is produced to cover a certain
period of time from a few months to an entire year. The key terminology that
you will need to understand is below:

A cash flow forecast will include:

Cash inflows (receipts)

Cash outflows (payments)

Net cash flow (inflows minus outflows)

Opening balance (this is the same as the closing balance of the previous
period)